Michigan Court of Appeals Holds that Short-Term Rentals Violate Residential Use Restrictions
Since 2004, the Michigan Court of Appeals has repeatedly determined that short-term rentals within Michigan communities that are subject to residential, business, and commercial restrictions are prohibited because they are commercial activities that are inconsistent with residential use. Notwithstanding this clear and consistent judicial record, property owners in communities with residential, business, and commercial restrictions who want to engage in short-term rentals have continued to take their chances with Michigan courts, hoping that the facts in their particular case will result in a different outcome. As evidenced by two recent decisions, however, the Michigan Court of Appeals has declined to adopt a more favorable position that favors short-term rental property owners and has continued to reiterate that short-term rentals violate residential, business, and commercial restrictions.
Aldrich v Sugar Springs Property Owners Association, Inc.
On January 12, 2023, the Michigan Court of Appeals published a binding opinion regarding short-term rentals and deed restrictions in Aldrich v Sugar Springs Property Owners Association, which involved short-term rentals within a large community in Gladwin County, Michigan that included “clusters of residential lots, residential condominium property, commercial property, recreational improvements to include areas designated for camping, and permanent green areas or other open spaces.” The community also was governed by a set of restrictive covenants that limited the use of property to “residential purposes only” and limited dwellings to single family residences.
In 2020, the homeowners association’s board of directors adopted a resolution that prohibited rentals within the community unless they were for a period of at least six months based on the residential purpose and single-family residence restrictions and Michigan case law. Two individuals within the community who used their properties for short-term rentals filed litigation against the homeowners association, alleging that the residential purpose and single family residence restrictive covenants did not prohibit them from engaging in short-term rentals and, because there was no commercial restriction in the community, short-term rentals were permissible uses of property. The trial court agreed and the homeowners association appealed the decision to the Michigan Court of Appeals.
Consistent with its prior short-term rental and deed restriction decisions, the Michigan Court of Appeals reversed the trial court, relying, in part, on the following analysis of what constitutes a “residential use” or “residential purpose” that was set by the Michigan Supreme Court in O’Connor v Resort Custom Builders, 459 Mich 335; 591 NW2d 216 (1999):
It is a place where someone lives, and has a permanent presence, if you will, as a resident, whether they are physically there or not. Their belongings are there. They store their golf clubs, their ski equipment, the old radio, whatever they want. It is another residence for them, and it has a permanence to it, and a continuity of presence, if you will that makes it a residence . . .
I don’t think that’s true of weekly—of timeshare units on a weekly basis of the kind, at least, of the kind being discussed here . . . The people who occupy it, or who have these weekly interests in this property, they have the right to occupy it for one week each year, but they don’t have any rights, any occupancy right, other than that one week. They don’t have the right to come whenever they want to, for example, or to leave belongings there because the next resident, who is a one-fiftieth or one forty-eighth co-owner has a right to occupy the place, too, and the weekly owner has no right to be at the residence at anytime other than during their own week that they have purchased. That is not a residence. That is too temporary. There is no permanence to the presence, either psychologically or physically at that location . . . .
The Michigan Court of Appeals also relied on a published decision involving short-term rentals and restrictive covenants, Eager v Peasley, 322 Mich App 174; 911 NW2d 470 (2017), which involved private occupancy, private dwelling, and commercial restrictions and held that short-term rentals violated all of those restrictions, noting that “the act of renting property to another for short-term use is a commercial use, even if the activity is residential in nature.”
In this case, the Michigan Court of Appeals reaffirmed that short-term rentals are a commercial use of property and, therefore, violated the residential purpose and single-family residence restrictions in the community. The Michigan Court of Appeals noted that while there was no restrictive covenant that expressly prohibited commercial use, there were restrictions that only permitted commercial activities to be conducted in certain areas of the community, which did not include where plaintiffs engaged in their short-term rentals. The Michigan Court of Appeals also reiterated that short-term rentals and deed restrictions require a case-by-case analysis on whether there is a permanent presence at the property and whether individuals at the property have the right to occupy it and leave their belongings there whenever they desire.
Melvin R Berlin Revocable Trust v Rubin
On July 20, 2023, the Michigan Court of Appeals released an unpublished opinion regarding short-term rentals and deed restrictions in Melvin R Berlin Revocable Trust v Rubin. The Berrien County, Michigan community was only made up of nine homes, seven of which were owner-occupied for at least six months out of the year. The other two lots were owned by a limited liability company, whose owners resided in England, and a married couple who lived in the state of Washington. The community offered a number of amenities that were available for members’ use only, and it had historically permitted property owners to rent their homes to family and friends. The two non-permanent resident property owners engaged a company to short-term rent their properties on their behalf, and they both alleged that their ability to short-term their properties when they were not occupying them was an important factor in their decision to purchase the homes.
The community was governed by a set of restrictive covenants that limited the use of property to “single family residence purposes.” The restrictive covenants defined a “single family” as “one or more persons each related to the other by blood, marriage, or adoption, or a group of not more than three persons not all so related together with his or their domestic servants, maintaining a common household in a residence,” and defined a “single family residence” as “any dwelling structure on a lot intended for the shelter and housing of a single family.”
The homeowners association decided that short-term rentals were not permitted under the restrictive covenants, and short-term renters were not permitted to use the community’s amenities, and eventually filed a lawsuit against the two non-permanent resident property owners to enforce the restrictions. The trial court agreed that the deed restrictions prohibited short-term rentals and, in response, the defendants filed a counterclaim, alleging that the HOA could not enforce the deed restrictions against them due to acquiescence, unclean hands, equitable estoppel, laches, and waiver. The defendants also filed three fraud claims against two of the HOA’s officers, alleging that they had misled them as to their ability to rent within the community. The homeowners association and its officers also prevailed on these claims, and the defendants appealed the trial court’s decisions to the Michigan Court of Appeals.
The Michigan Court of Appeals upheld the trial court’s decisions, again relying on its prior decisions in O’Connor and Eager and its more recent decision in Aldrich. It also, though, laid out a concise and pointed statement of the law regarding short-term rentals and restrictive covenants, stating:
A residential purpose is the one place where a person lives as their permanent home, and, when applying that standard, a summer home cannot constitute a permanent residence when a person’s domicile is in another location. In a residence, a person lives, has a permanent presence, and stores their belongings there, even when they are not at home. A residence reflects permanence and a continuity of presence. Occasional rentals do not alter the character of a subdivision, do not defeat the original purpose of the restrictions, and do not result in a waiver of restrictions. Additionally, short-term rentals violate a restrictive covenant barring commercial use of a property. The act of renting property to another for short-term use presents a commercial use despite the fact that the activity is residential in nature.
In this case, the Michigan Court of Appeals focused on defendants’ own use of their properties, noting that:
[I]t is apparent that defendants did not utilize their property as a single family residence. Defendants, as purchasers of the properties, did not use the properties as a permanent home, and a summer home cannot constitute a permanent residence when their domicile is in another location . . . Defendants did not delineate the extent to which they stored their belongings at their homes. Instead, their use was intermittent and inconsistent with a single family residence; it did not reflect permanence and a continuity of presence generally associated with a single family residence but rather, a vacation home.
In reviewing defendants’ acquiescence, unclean hands, equitable estoppel, laches, and waiver claims, which were primarily based on historical rentals to family and friends, the Michigan Court of Appeals held that these “occasional rentals by other members did not alter the character of the subdivision, did not defeat the original purpose of the restrictions, and did not result in a waiver of a restrictions.” The Michigan Court of Appeals also noted that the HOA’s restrictive covenants included an anti-waiver provision, stating that “[f]ailure by the Association or any owner to enforce any covenant or restriction in no event shall be deemed a waiver of any right to do so thereafter.”
And regarding defendants’ fraud claims against two of the HOA officers, the Michigan Court of Appeals held that these claims were without merit both because the defendants were unable to identify any statements that were made directly by one of the HOA officers to one of the defendants regarding short-term rentals prior to defendants’ purchase of their properties and because defendants received copies of the restrictive covenants and were on notice of the single family private residence restriction before they purchased their properties.
Takeaways
The Michigan Court of Appeals’ 2023 record on short-term rentals and restrictive covenants shows that it continues to disfavor short-term renting of properties in communities that are subject to residential use restrictions. Its short-term rental opinions released so far this year also highlight the sharp focus that the Michigan Court of Appeals will engage in when presented with the next short-term rental and deed restriction case, looking at the permanence of the presence of both the transient tenants and the property owners themselves.
As the growing list of cases in Michigan involving short-term rentals and deed restrictions indicates, whether short-term rentals are prohibited in a community is determined on a case-by-case basis, and community associations that desire to restrict or prohibit short-term rentals based on their current restrictions should consult with attorneys who are knowledgeable in community association and real property law.
Kayleigh B. Long is a Member at Hirzel Law, PLC and focuses her practice in the areas of community association law and appellate litigation. Ms. Long obtained her Juris Doctor degree from Indiana University Robert H. McKinney School of Law, where she graduated in the top 5 of her class and served as the Senior Executive Editor on the Indiana Law Review. Ms. Long has been recognized as a Michigan Rising Star in Real Estate Law by Super Lawyers since 2020, an award given to no more than 2.5% of the attorneys in the State of Michigan. Ms. Long has also made numerous presentations on community association law, along with having articles published in the Michigan Real Property Review. She can be reached at (248) 986-2290 or klong@hirzellaw.com.
